Search for New Directions - A Study of Hong Kong Electricity Market

4 December 2014
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Executive Summary

About the Study

  1. For many years the electricity market of Hong Kong has been regulated by the Scheme of Control Agreements (SCAs) signed between the Hong Kong Government and the two power companies, namely, the CLP Power Hong Kong Limited (CLP) and the Hongkong Electric Company Limited (HEC) to provide electricity services to consumers living in Kowloon and New Territories by CLP, and Hong Kong Island by HEC. The energy policy objectives of the Hong Kong Government have been to ensure that the energy needs of the community are met safely, reliably, efficiently and at reasonable prices, while minimising the environmental impact of electricity generation. It has expressed the intention to introduce competition upon the expiry of SCAs by 2018 if the requisite market conditions are present, to transform the market of two regulated monopolies.
  2. Subsequently the Hong Kong Government released the consultation paper ‘Planning Ahead for a Better Fuel Mix – Future Fuel Mix for Electricity Generation’ (the Environment Bureau consultation paper) in March 2014 as a first step to invite the market to present views on the desirable fuel mix structure of Hong Kong and to deliberate on the future regulatory regime in 2015.
  3. In view of the fact that electricity is a crucial utility service and the future regulatory regime will pose significant implications for consumers, the Consumer Council (the Council) engaged Consumers International (CI), the global federation of consumer organisations, to form an expert group to look into the international experience of electricity regulatory reform in major markets and its implications for consumers. Furthermore, the study also highlights areas of concerns and opportunities that the Hong Kong Government should take into account in the coming regulatory review, and aims to pave the way for a more structured discussion.
  4. Apart from desktop research and literature review on international developments from around the world, particularly from Australia, the United States, Mainland China, the United Kingdom and elsewhere in Europe, the Council together with the expert group engaged in May 2014 in a forum, a wide range of stakeholders in Hong Kong, including the professional groups and industry associations, the power companies, the environmental bodies as well as the Hong Kong Government to listen to their views on the current regulatory regime and other key aspects of concern. Despite the very extensive engagement, the Council and the expert group faced limitations in accessing commercially sensitive information for more in-depth analysis. Therefore, suggestions drawn from this study serve to offer the Council’s views on policy directions, but not to propose an ideal or the best regulatory regime model and implementation roadmap.
  5. Lessons learnt from international electricity market reform show that there is no perfect model that could address the (sometimes conflicting) objectives of reliability, affordability and cleanliness of energy, without ultimately the needs of a conscious trade-off in policy decisions. Having said that, for the interests of Hong Kong consumers, it is essential to design a regulatory framework that has a much more rigorous focus on consumer welfare and consumer participation as compared with the former review in 2005. Furthermore, this report also discusses on areas which, in the opinion of the Council, requires close attention specifically supply side possibilities, demand side interaction, energy efficiency, policies for disadvantaged consumers, regulation and sustainability.
  6. In this report, the Council has sought to consider three principal issues: market liberalisation, sustainability and regulatory development with special emphasis on the protection of low-income consumers. The Council sincerely hopes that the steps taken would be appreciated by all stakeholders and Hong Kong consumers at large, and looks forward to having a constructive, professional and collaborative discussion on the way forward to advise the Hong Kong Government for the most suitable outcome on electricity regulatory reform for Hong Kong.